Article Detail

Russia’s full-scale invasion of Ukraine, which began on 24 February 2022, caused extensive damage to the country’s productive capacity, energy infrastructure and transport networks. According to a joint assessment by the Government of Ukraine, the World Bank, the European Commission and the United Nations, direct damage had exceeded $195 billion by the end of 2025, while Ukraine’s reconstruction and recovery needs over the following decade were estimated at almost $588 billion.

Russia has historically been one of the world’s major energy suppliers. In 2021, it accounted for approximately 40% of EU natural gas imports, 25% of oil imports and more than 40% of coal imports. Following the outbreak of the war, Russian energy supplies were significantly reduced or discontinued as sanctions and other restrictions reshaped established trade flows.

The immediate impact on energy markets was substantial. In 2022, Brent crude oil traded above $120 per barrel at certain points, while prices at the European TTF gas hub exceeded €300 per MWh. In response, EU countries accelerated efforts to diversify their energy supplies, expand renewable energy capacity and develop infrastructure for liquefied natural gas (LNG) imports.

Despite the lower annual averages, energy markets experienced significantly greater volatility in 2022. At various points during the year, Brent crude oil traded above $120 per barrel, TTF natural gas prices reached approximately €340/MWh, while European thermal coal prices exceeded $400 per tonne.

The war in Ukraine intensified inflationary pressures that were already present in the global economy during the post-COVID-19 recovery. Disruptions to agricultural production in Ukraine — one of the world’s major exporters of grain, sunflower oil and maize — contributed to food supply pressures across a number of regions, particularly in North Africa and the Middle East. At the same time, rising prices for fuel, fertilisers, transport and logistics added further pressure to inflation.

Note: HICP is used for the European Union, while national CPI measures are used for the United States, the United Kingdom and a number of other countries.

Across the EU, annual average inflation rose from 2.9% in 2021 to 9.2% in 2022, before declining to 2.5% by 2025. Eurostat notes that the sharp increase in prices in 2022 reflected, among other factors, the impact of Russia’s invasion of Ukraine, with particularly strong price increases recorded in housing and energy, as well as transport.

The impact, however, varied considerably across countries. In Poland, annual average inflation reached 14.4% in 2022 and remained elevated in 2023, while in the United States it fell from 8.0% in 2022 to 4.1% in 2023. Egypt followed a markedly different trajectory: inflation continued to accelerate after 2022, reaching 33.9% in 2023. The effects of the global price shock therefore cannot be assessed in the same way across advanced and developing economies. Egypt followed a markedly different trajectory: inflation continued to accelerate after 2022, reaching 33.9% in 2023 and remaining substantially more persistent, as reflected in World Bank data. The effects of the global price shock therefore cannot be assessed in the same way across advanced and developing economies.

The war created new risks for global trade, including reduced port capacity and restrictions on exports of metals, fertilisers and agricultural products from Ukraine and Russia. At the same time, greater emphasis on economic security and reducing dependence on geopolitically vulnerable regions encouraged multinational companies to reassess their supply chains and reconsider some of the assumptions underlying the traditional model of globalisation.

During the period of severe global logistics disruption, the cost of maritime container transport rose sharply. According to UNCTAD, global container freight rates reached exceptionally high levels during 2021–2022, at certain points rising to four to five times their 2019 levels.

The onset of the full-scale war in Ukraine was accompanied by a significant increase in uncertainty and volatility across global financial markets. Rising geopolitical risk affected asset prices, credit spreads and international capital flows. Major equity indices experienced considerable volatility and declines during the first months of 2022, although these movements reflected several factors operating simultaneously, including high inflation, expectations of tighter monetary policy and uncertainty surrounding the war.

The impact was particularly pronounced in emerging economies. The IMF identified increased pressure on portfolio flows following the outbreak of the war, together with a greater risk of capital outflows as global investor risk sentiment deteriorated.

Although the initial financial-market shock gradually subsided, the war reinforced the importance of geopolitical risk in investment decisions. Political instability, sanctions exposure and supply-chain vulnerability are now more prominent considerations in assessing international investment risk.

The economic consequences of the war can be divided into two broad categories: short-term shocks and longer-term structural changes.

The initial response was largely shock-driven. Energy and transport costs rose sharply, inflationary pressures intensified and financial markets became more volatile. As markets adjusted, however, many of these effects began to ease. By 2024–2025, energy prices and inflation across many advanced economies had fallen substantially from their 2022 peaks.

The more important long-term effect lies beneath these headline indicators. Europe has diversified its energy supplies and substantially reduced its dependence on Russian pipeline gas. Global trade flows have shifted, while businesses have become more conscious of geographical concentration and geopolitical exposure within their supply chains. Reliability, resilience and economic security are increasingly considered alongside cost and efficiency when companies and governments make sourcing and investment decisions.

This transformation had already begun during the COVID-19 pandemic, but the war accelerated the shift from a model of globalisation focused primarily on efficiency towards one in which resilience and economic security play a much larger role.